Stocks Start Second Half On an Upswing

By Riva Gold Features Dow Jones Newswires

Broad gains across sectors lifted U.S. stock indexes higher on the first day of the third quarter.

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The Dow Jones Industrial Average rose 81 points, or 0.4%, to 21431 shortly after the opening bell. The S&P 500 rose 0.4% and the Nasdaq Composite added 0.5%.

U.S. stocks rose to fresh records in the first half of the year, propelled by strong corporate earnings and an improving global economic picture. Yet many investors and analysts expect stock gains to slow the rest of the year, citing recent weakness in inflation data, higher-than-average stock valuations and a recent slide in commodity prices.

"The big question for markets is now: Is this soft patch in the U.S. behind us?" said Michael Herzum, head of multiasset strategy at Union Investment.

The pace of earnings growth is also expected to slow in the second quarter of 2017 after companies posted their best results in nearly six years.

"We've reduced risk after being long for almost six months," Mr. Herzum said. "We think the bulk of the earnings upgrades are now done," he said.

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Trading volumes are expected to be lower at the start of the week ahead of the July 4 holiday in the U.S., with some markets set to close early on Monday and shut down on Tuesday.

Government bonds continued their descent Monday, with the yield on the 10-year U.S. Treasury note edging up to 2.307%, according to Tradeweb, from 2.298% on Friday. Expectations that global central banks, including the ECB and Bank of England, might be moving away from ultra-accomodative monetary policy sent government bond yields sharply higher last week. Yields rise as bond prices fall.

"Our perspective is we're going to have pretty modest growth and modest inflation" in the second half of the year, said Greg Woodard, who directs portfolio strategies at Manning & Napier. "We see rates grinding a bit higher but [monetary] conditions are going to remain fairly accommodative around the world," Mr. Woodard said.

In Europe and Asia, a flurry of manufacturing readings added to confidence in the health of the world economy, lifting stocks.

June marked the best month for eurozone factories in more than six years, data showed Monday, following signs of momentum in Japan and China. Shares of banks, energy companies and miners led gains in Europe, which typically indicates confidence in the strength of the global economy and the outlook for commodities.

The Stoxx Europe 600 was up 0.7%, on track to snap a four-session losing streak.

As investors favored risk assets, gold fell 1.2% to $1,227.10 an ounce, around its lowest since May, while the dollar rose 0.6% against the yen.

Earlier, stocks in Asia mostly inched higher as investors held back on making decisive bets in the absence of a firm lead from the U.S.

Hong Kong's Hang Seng added 0.1% after its best first-half performance since 2009, while Japan's Nikkei Stock Average was also 0.1% higher as a central bank survey showed business confidence among the nation's large manufacturers strengthened to its highest level in more than three years in the second quarter.

The Shanghai Composite inched up 0.1% after a private gauge of China's factory activity rebounded in June to show an expansion, echoing last week's official data.

--Akane Otani contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

July 03, 2017 10:12 ET (14:12 GMT)